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As India's forex reserves surge past $600b, liquidity gush to fuel equities

New Delhi: As India's forex reserves cross the $600 billion-mark, there are indications that the ample liquidity, both globally and in the domestic space will continue to drive the Indian stock markets.

"The success of these efforts is reflected in the stability and orderliness in market conditions and in the exchange rate in spite of large global spillovers. In the process, strength is imparted to the country's balance sheet by the accumulation of reserves," RBI Governor Shaktikanta Das added.

Experts say foreign exchange reserves have topped $600 billion and more than $105 billion this year alone indicating huge liquidity in the system.

The average daily turnover in NSE is about Rs790 billion in May 2021 as against Rs 650 billion in 2020 and only Rs360 billion in 2019. Experts said investments by the young set is spiking and the boom in markets is not going to ease off any time soon.

According to Motilal Oswal Financial Services, broader markets witnessed buying interest after the RBI announced a special, Rs150 billion liquidity window for sectors like travel and tourism, tour operators, hotels, restaurants, aviation and related companies, spa clinics and beauty parlours.

Therefore, stock specific action was seen in these sector stocks, while, liquor stocks like, United Breweries Globus Spirits, United Spirits, IFB Agro Industries, and Radico Khaitan surged between 1 to 8 per cent.

Motilal Oswal Institutional Equities said in a report after consolidating in April'21, the Nifty headed north in May'21  to close at an all-time high of 15,583.

The Nifty is up 11.5 per cent thus far in CY21. The rally was propelled by strong FII inflows in the second half of the month and steady decline in daily COVID-19 cases in India as well as supported by strength in other Asian stock markets.

The report said FII inflows were back and stood at $0.7 billion. DIIs saw inflows for the third consecutive month at $0.3 billion. Over the last 12 months, midcaps are up 94 per cent v/s a rise of 63 per cent for the Nifty.